Really Useful Oil Thread

MEANTIME, BACK IN BOLVIA...

The good people of Bolivia today elected Evo Morales, a leader who said that he was “the United States?worst nightmare.?This eminently qualified former llama herder who chews coca leaves while campaigning is also an ally of Hugo Chavez and pledges to oppose, “parasitic businesses that grow richer at the expense of the poor.?Unfortunately, these ‘parasitic businesses?can include just about any business, at any time.

Let’s say your little junior explorer gets really lucky and makes a truly world-class discovery in a country like Bolivia. It may not take too long before your junior is labeled a ‘parasitic business?and the question of its ‘true ownership?(think the people) arises. The fact that your company financed the project from day one, and made a point of consulting with, and taking care of the locals wherever possible, is a moot point.

In Peru, retired army colonel Ollanta Humala has experienced a massive surge in his poll numbers for the country’s April 2006 election. Like Morales, Humala is similar to Chavez ideologically and has advocated nationalization of “strategic enterprises.?Humala has a very troubling record and if he were to win in April the consequences could be dire for investors, after all Peru’s GDP is more than 5 times that of Bolivia, and Peru is the world’s fourth largest producer of copper.

Other countries on the left, or moving in that direction include: Ecuador, Honduras, Uruguay, Brazil, Argentina and now even the staid Chile, although these do not all necessarily represent threats on the same scale as Bolivia and Peru.

The bottom line is that a decision as to whether the risk is worth the potential reward, and if you’ll even get a chance to participate in the reward, should it materialize. The shift to the left in South and Central America would appear to be gathering steam and it’s unfortunate because many of these countries have come a long way economically and in terms of their living standards.

While there is no question that Latin America has great potential geologically, it may be necessary to really cherry-pick locations, with politics coming ahead of projects in the decision making process. One must hope that cooler heads will prevail and that the likes of Peru and Bolivia will muddle through, but without question, your model must now factor in a greater political discount.

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